California Assembly Re-Introduces Internet Tax Bill

Two California Assemblywomen have reintroduced a bill that would require companies to collect sales tax on all purchases made in California, either online or in a store, regardless of whether the firms have a physical presence in the state.

The bill, A.B. 81, would require the state Board of Equalization to enforce an existing law requiring online retailers to collect the sales tax on sales to California consumers. Currently, California tax law follows the Quill decision, a 1992 U.S. Supreme Court ruling that requires a company with a physical presence in a state to charge sales tax for everything it sells, including catalog and Internet sales. If a company does not have a physical presence in the state, then it does not have to charge sales tax.

Assemblywomen Carole Migden and Dion Aroner, who both sponsored and reintroduced the bill, said that some California-based e-tailers skirt the law by forming dot-com subsidiaries located outside of the state. The legislation seeks to clarify the situation by making sure that the sales tax law applies equally to brick-and-mortar, mail-order and Internet sales. In general, they said, the bill would establish clear rules requiring wholly or partially owned online subsidiaries of California retailers to collect sales tax, as other California businesses are required to do.

"A significant number of large corporate retailers are evading the law by not collecting sales tax," Migden said. "Fairness to the entire business community demands that the state enforce current law even-handedly so that all retailers, particularly large chains -- including brick-and-mortar, mail-order and dot-com outlets -- each share the same responsibility to collect the tax on the goods they sell."

The lack of clarity in the current law has allowed retailers such as Borders Books, with more than 40 stores in California, and Barnes and Noble, also with stores in California, to continue evading their sales tax collection responsibility for online sales via internet-based subsidiaries, Migden said.

She said other locally based booksellers with online operations collect California sales tax, as do most other retailers. For example, Macy's.com, REI.com, Walmart.com, and EddieBauer.com each have stores located in California and collect California sales tax on in-state purchases.

"The way the state Board of Equalization has decided to neglect enforcement of the law is totally unfair to community-based businesses. I believe the law is clear. If you are located in California, you collect sales tax. Forming a dot-com subsidiary does not relieve you of this obligation," Aroner said.

A.B. 81 is a reintroduction of A.B. 2412 of the 1999-2000 legislative session. A.B. 2412 was vetoed by Gov. Gray Davis in September.

Davis is on record as being generally opposed to Internet taxation, and many California hi-tech businesses have opposed it.

The Direct Marketing Association opposes the bill, arguing that California is trying to expand the boundaries of nexus.

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